For those doing short sales, how many of the banks are asking for financial statement and proof of income from the homeowners requesting the short sale? I have a client who purchase a house 3+ years ago for 147k and now he claims that houses on his street are selling for 60-80k. My client would like to purchase one of the houses for 60-80k and then short sale his current house. The issue is whether the bank will come after him for the shortage on the short sale. What are the banks doing in this situation?

The short sale paperwork requires a listing of assets, liabilities and income. More than likely, your client will have to attend the closing by bring a check to cover the shortage on the note. Why doesnt your client try refinancing? Rates are at 5% for 30 year fixed.

Depending on his income, if he already owns a home, i'm not sure who would lend him money to purchase another home. I'm sure the mortgage company would ask what he intended to do with the other house. Sounds like fraud. The mortgage companies are not that stupid to allow him to pul a switch.

I agree with Sumo. You post inquires about the likelyhood of a permitted short sale, but it looks like a fraudulent transfer whereby your client intents to get the house of his dreams and stick the mortgage company with his prior house which is not worth as much as the mortgage. I would be more concern about the criminal implications of the transfer rather than the civil financial issues you discussed. Be careful with your legal advice. I think a CYA letter is appropriate so that you are not aiding and abetting a fraudulent transfer.